Ep 2: 2. Rethink: Financial Advice vs. Sales

Episode 2 of Rethink Financial Advice, co-hosted by Derek Notman, CFP® (Founder & CEO, Couplr AI) and H. Adam Holt, CFP® (Founder & CEO, Asset-Map). (29:46)

Episode 2 of Rethink Financial Advice, co-hosted by Derek Notman, CFP® (Founder & CEO, Couplr AI) and H. Adam Holt, CFP® (Founder & CEO, Asset-Map). Listen on Apple Podcasts, Spotify, YouTube, or Acast.

Episode Summary

Adam Holt and Derek Notman open with a question they say every advisor should be able to answer plainly: are you an advisor who sells, or a salesperson who advises? Both came into the business at insurance-affiliated firms, and both describe how their own answer shifted over time. The discussion then turns to scale, and the numbers explain why the distinction has become muddy. The hosts cite more than 30,000 registered investment advisers in the United States, the large majority of them solo or small ensemble shops, alongside more than 600,000 people registered with FINRA and roughly 409,000 licensed life insurance agents as of a 2020 count. Much of the episode is about compensation transparency, and specifically a test the hosts propose: would a client pay the same amount in cash if the compensation were unbundled and stated up front rather than disclosed deep inside a document?

What this episode covers

• The difference between professional identity and job title, and why regulators keep pushing on it
• Industry scale figures the hosts use to explain why the word advisor has become ambiguous
• The unbundling test: would a client pay the same amount if it were quoted in cash up front?
• Why answering a direct question directly is itself a trust signal

Full Transcript

Machine-generated transcript of this episode.

Welcome to Rethink, the financial advisor podcast. My name is Adam Holt. And this is Derek Notman. We are your hosts, both veteran advisors and FinTech CEOs who challenge the status quo, question everything and have fun doing it. Hear honest commentary on the challenges facing advisors today. And be part of a community where we can all rethink the profession. Now on to our episode. So Derek, I’m wondering, are you an advisor who sells or a salesperson who advises? Yeah, that’s a super interesting question. I would say when I started a little over 15 years ago, I was a salesperson who advises. But there’s been a shift.

And now I would say it’s flip-flopped. But that’s tough because it’s almost hard to quantify one or the other. But I would say there’s definitely been a shift towards the former at this point. I’m curious. I think that you’ve got a similar journey there, but I’d be curious to know how you started and how you would identify yourself now. It’s a wonderful question because it gets you stuck in this cycle. And I know many of our listeners are probably asking or have asked that question before because professional identity is so important today. Not only to ourselves and how we construct our firms, but also to our customers.

There’s a huge regulatory movement towards this. As you already know, we’ve all been affected in some level by either the DOL or best interest. Really, this advocacy for the customer. I think it’s important that we define this. When you started out in the business, how did you come into the business? You mentioned this. Yeah, I came in. I’d done a couple of interviews with different companies and I came actually in as a life insurance agent. I found out after I got hired, right? I really wanted to help people with their money. Went through the interview process. Everything sounded good and they’re like, well, you got to sell this life insurance thing as part of this.

I’m like, okay, well, that’s cool. I get it. There’s risk management involved here. But then I got into the trenches. I’m like, all I’m really selling is life insurance here and maybe some other stuff on the side. So really, at that point, I’ve said this before in even other podcasts, I’ve always had the CFP mindset. Even though I wasn’t a CFP for many years, I had that mindset. So I would say the salesperson who advises is actually quite fitting when I came in. But eventually I flipped it. I got the CFP and I did all the other things that we do to actually become an advisor.

But we still have to sell it at the end of the day. We’re going to get to that. But that’s actually a big part of being an advisor, I would argue. I agree, I agree. Yeah, I don’t know. I mean, what are your thoughts on that? Did you have a similar start? Well, all my journeys are, it seems like a saga, right? It’s less than a story or a snippet. I also, like you, got into the business at a financial services firm, aptly marketed that way and found out that it was a life insurance company that had gotten into the investment business. I was there.

I loved the people. The people really drove me to do it. I learned the life insurance business. At the time, I really didn’t understand it. When you get into a business that requires the distribution of a solution, you find that the advice usually winds up recommending the solution. Big surprise. Because at the end of the day, you need to pay the bills and your managers and your mentors are all expecting that you’re going to deliver sales results. So I was very clearly a salesperson in my early days. I learned the product. I learned the process. That was good. But I also, like you, within the first couple of years realized I wanted to be a financial planner.

Mostly because of my own ego. I wanted to be viewed by my customers as someone who was an advocate for them first. And these solutions were literally just the execution of our advice. And of course, I did have some success with that. When I went into financial planning really early, I also like you got my CFP very early because I was just committed to education. I figured as a young person, the only way I was going to compete was just to be the smartest person in the room for my age. That was what I did. Totally, right? Yeah. What else? I didn’t have a natural market.

I don’t have my call list of 100 people to call upon. But it’s interesting. So many of the advisors that we both know started in either the wirehouse or in the insurance or annuity space because those are the ones that hire us into the world. Very few advisor only firms existed 15, 20 years ago. And we’re willing to pay somebody a base salary who had no clients to bring to the firm. The infrastructure is set up specifically to bring you in as a product person first. Still to this day. It still is. Product distribution is how the whole industry has been built for an instructor for decades.

Over 100 years, arguably. Right. It’s not broken. Don’t fix it, right? But you know, of course, what we have to do with it. We got to rethink it. We got to rethink it. So that doesn’t mean we’re going to change it. I think what’s happening is when we thought about what we wanted to talk about today, one of the interesting themes that brought Derek and I together, having different paths that we mentioned in our first episode, is that we both have a similar mindset that the financial advice community actually does act in their client’s best interest. Most of the people that I know in this business really want to help.

We lead with that. We lead with advice. We lead with empathy, with authenticity. The products, although really critical, and we can’t discount this, when you give somebody advice and you don’t give them the opportunity to take action, you’re not necessarily serving them. That would be like me saying, listen, Derek, you should probably eat better. Anyway, what are you watching on Netflix today, right? If I’m not actually going to help you go, okay, let’s not go to the fast food. Let’s go to get a salad or something. Then I can actually be an advocate for you. No question. I think there’s nothing wrong with the majority of financial products out there, but I think this whole leading with advice shift is happening.

It’s super interesting how there’s this transition from sales to advice. We’re not saying that means products go away. It’s just the products are sold differently. It’s interesting when you look at perception, and I think the perception forever is that unless you were a CFP, unless you had all those credentials, is that you were just a salesperson. That was the consumer’s perception. And not that was bad, but that’s just what it was. But I think the perception moving forward, and even arguably today, this has been driven in part by the DOL and best interest, and I think just access to information has also helped drive this, is that the consumer is now perceiving salespeople is maybe not the best thing for them.

Although at the end of the day, if they’re going to get a product one way or another, it’s kind of interesting because the end result is almost the same, but it’s that journey. It’s that process. It’s the perception that’s changing. And if the regulatory bodies are doing it and the consumer’s doing it, I mean, as advisors, even salespeople, we have to pay attention to this. Yeah, that’s an interesting thing because I think a lot of the commentary, let’s what hits the media, what hits social, and what we tend to talk about it and kind of the off air is, does productivity of placing the business actually predict you being a good advisor?

I mean, we talked about this before, which was most of the market has always, for years, said that the top advisor, the best advisor, was the top sales producer. Right. It goes back to sales, exactly. Why is that? I mean, they made the most money for the company, not necessarily they were the best advisor, because people, I don’t know if you notice this, there’s been a bunch of companies that have switched from the, they’re an agent or a representative to now they’re a financial advisor. Everybody’s a financial advisor, right? CFP or not, CFP, they don’t even know what the ethics committee does, but, you know, there’s a, I don’t know, it’s getting washed out for me.

I’m not exactly sure who’s an advisor anymore or not. You found some fantastic stats about the number of people in the business. I thought that was really interesting. It’s fascinating. You’ve got, and I don’t know the exact number here, but it’s over 30,000 RIAs in the United States. What’s interesting is like 29,000 of them are smaller solo shops, which is fascinating, like solo or small ensemble shops. We’ve got over 600,000 people registered with FINRA. And there was a study that came out in 2020 that 409,000 life insurance agents in the United States. It’s fascinating, but they’re all even the RIAs. I mean, this is what’s interesting is like the bulk of the numbers here are salespeople.

That’s how they’ve been classified forever. And you’ve got this smaller number of people who would identify with advisor first, leading with advice type of mentality. But there’s been a massive shift there and the growth in the RIA space is going crazy where the growth in the salesperson environment, and I’d have to back this up with some stats, but it appears to be stagnant where there’s almost no growth there. So you can tell that something’s happening. Well, there’s no question. There’s an enormous amount of turnover in the early years for all these businesses. We all know that there’s one in four chance of surviving. If you have a good shot behind you.

It’s amazing to see how many of the… We’ve done a lot of surveys on this, specifically with some of the wealth management companies at our company to try to figure out what’s happening in the field force distribution market. It’s actually a program that we put. We’ll put a link to it in this at the bottom of it. It’s kind of interesting reading. But it’s amazing to me how many of the larger companies today are switching over their own identity to financial advice, holistic planning, advice first, mandating CFP, starting to push this. There is a wholesale shift of the organ industry to move to an advice led experience.

That doesn’t mean that product sales are going away. That’s been the lifeblood for many companies. Why they can afford to pay what they pay financial advisors has been obviously a pretty good profession for many people. That being said, I think we’re going to start to see what we’ve been hearing in the undercurrents of changing compensation. I think we’re going to start seeing this because how somebody is paid directly impacts their identity. We tend to provide all the value and advice to our clients throughout the years. But then we get compensated by the assets and or the products that they placed. In some measure, there needs to be better disclosure as to how that’s actually working.

Transparency. That’s it. It’s transparency. How do you think this is going to play out? If we rethink compensation in our business, if in fact I’m right, and how a person is paid is how that defines their consumer-facing identity. You get paid by placing a mortgage. You get paid by receiving money from a tamp. This is what I’m talking about. You get an insurance commission. Does that overarching dictate what your consumer’s identity is unless you’re charging a fee or an hourly rate? I think it does. But I think it’s also shifting. You mentioned mortgages. This is fascinating. So I have a friend who is actually pretty high up at one of the top three banks in the country and manages a ton of mortgage brokers.

They just switch their entire compensation structure from commission only to base, plus now just a percent of profits. So they also are moving away from this product type of compensation structure. I think it’s going to happen more and more. And it does really identify or derive the identity of who you are based upon how you’re paid. It’s really fascinating. I think the financial services industry tends to be a bit slow to catch up with whatever else is going on. But I see it happening. I think for rethinking this, I think this is the direction it’s going. Well, I think if financial advice specifically is going to earn the rights to be a profession, I know this is going to be controversial to some of you.

The law, lawyering, being an attorney is a profession. Tax is a profession. Consulting is a profession. You pay for the rate. You pay the rate for the person based upon their skill and their capability and their firms. You pay more for more capability, ideally, or skill, and you pay less for less. If financial professionals are really moving towards the fee, one of the things that I kind of think of always everything in analogies. Can you imagine go to a doctor and they actually get paid, not based upon the advice they give you to their patient. They actually got paid for how many drugs they prescribed.

If you had paid on prescriptions, would that misalign the kind of health guidance you would get? Probably. I think it can. I think so. I think it can. Obviously, they’re held to a different standard, though, right? Because the CFP is just a designation versus like the CPA or being an attorney those are actual licenses and boards that you have to… It’s a totally different expectation is the right word, but it holds more validity than just saying, hey, I have my… Not that a CFP is a bad thing. I think it’s extremely important, but that’s almost a whole other topic. Should the CFP become a license?

That’s interesting. We all have these licenses, whether you’re a registered investment advisor, FINRA or otherwise, or insurance provider. You’ve got to get licensed in every state, but they’re not necessarily making these mandates. Now, I’m not actually suggesting, Derek, that we completely overhaul the system. Where I think it matters is this. And here’s where you can take this into your practice. The reason why we put this at such a primary spot in this podcast episode is because we think it’s critical that everyone who’s in our space address this question, what is my identity? And what is that persona? What is that identity brand? How will it dictate how I market?

How I build my firm? What I focus on? What kind of content I’m going to create? What am I not going to do? What am I going to say yes to? Who am I going to partner with if I’m not going to focus on this area? And I think understanding whether you’re going to lead with advice and be an advisor who sells or implements or a salesperson who advises is going to really impact that throughout the rest of the mentorship that we have to provide. Because we’re going to touch on this. It’s going to influence. Yeah, the identity question is a huge one. And I think it’s a challenge for a lot of us.

And you and I experienced this when we started is we came in under the guise of financial advice, but really it was a product thing. So we were conflicted with what our identity was from day one. We didn’t really know what it was. So it’s tough. So I think that’s why this question is so absolutely important because you’re right. Being authentic, being genuine is not only important from us, but our customers, the consumers demanding this. They have access to information like never before. So they want to know who the heck is this person. We have to pay attention to that. It’s the whole, we don’t want to be sold to, we want to buy.

And there’s plenty of buyers out there, but people don’t want to buy from somebody that’s not authentic and genuine and doesn’t have a clear identity. As an advisor or a salesperson, either or, if you don’t have a clear identity, then how is someone going to be able to identify with you? If you’re the right person to help them with whatever they need. That’s true. It’s funny. This came up in a prior conversation. We said, as a joke, if you took the product compensation that is typically earned from placing and solving a whole bunch of problems for a household or a business, whatever you work with, and then you actually just wrote that down and said, okay, I want you to pay this in cash or if you stripped out, you stripped it out, would they pay you the same amount?

And I think it’s been convenient that it’s been, it’s one of those things hush, hush, don’t talk about it. It’s disclosed on page 53 and you read the prospectus, right? Because I read it and therefore I’ve disclosed it. Maybe you’ve done that on your ADV or I don’t know how all of this stuff actually gets communicated because unless you’re coming up front and saying this, and it really reminds me of a question somebody asked me about authenticity. They said, when somebody asks you a question that’s a yes or no answer, and of course there’s all details, there’s always explanation, you should answer the question first.

Unfortunately, most people, when you ask them a straight tough question, they give you a whole bunch of stuff and then they answer the question at the end. You know what that sounds like? It sounds like excuses. I wonder how much more we could get control over being authentic by saying up front, by the way, here’s how I get paid and here’s how much it’s going to be and it’s going to be this in dollars, not in percentages or bips or whatever. It’s this how much dollars, but let me now tell you why it’s worth it, what I’m going to deliver. Because I think there’s been a real disconnect and it’s unfortunately a disservice to the consumer that when you ask them, what does your financial advisor do and how much does it cost?

Most of them have no clue. They provide me comfort and confidence. That’s what they provide. It’s a person to call instead of a computer or someone who just got out of college and is maintaining the phones that day. They’re buying confidence, hopefully competence, but I don’t know that they know what they’re paying and really what they’re getting. I don’t think so. I don’t think many of them can actually articulate it. I’m actually helping a friend right now switch advisors. Because of our relationship, I’m not working with them. I kept asking them, well, what are you paying? They’re like, well, I don’t know. I think I pay this.

I’m not quite sure. And they couldn’t really articulate the value either. So I think it’s there. People want it, but you’re right. I think for so long, the price has been buried and this is a chicken egg type of thing, right? Did consumers get comfortable with paying for financial advice and products because of how they’ve been distributed forever, right? Or was it the other way around? I don’t know. It’s tough to know. I don’t know if we’ll ever be able to answer that. However, it feels like there is a shift. Pretty much everything in our lives these days is subscription based, right? I know what I pay per month.

I’m willing to pay that. It’s transparent and I get X, Y, and Z because of it. So I think there is that shift. So I don’t know if we’ll ever get there completely in our industry. Some products just would never work that way. But the transparency piece is absolutely paramount. We have to have that. We don’t go to Best Buy to buy a television if we can’t compare the prices. We just have to have it out there. You’re totally right. And today you mentioned it great that people need to be engaged and not many people want to be sold anymore. And that’s something that we’ve been talking about for a long time, right?

I could do my own shopping, but if you engage me, I’ll buy from you because you know exactly place the business with you. But I’m already agreed. I’m mentally, I understand why I’m doing it. One of the things that somebody said once was if the product companies decided to stop paying the financial professionals completely, would your clients continue to pay you the same amount directly, right? Would they actually understand the value you provide enough to say, wait, you were getting $15,000 a year in compensation from that company. Okay, I’m now charging you directly. You’re paying it. It just, you didn’t see it. I think what happened is, yeah, the historical way of distributing financial services is and was, it’s just so established.

The legacy is so well run. We all both know that there’s all kinds of companies that have their fingers in the pot, side deals, selling arrangements. We don’t even understand half the stuff. There’s so much money moving through the system that it’s easy to get kind of, we’ll just accept it because that’s just the way that products work. I think we’re starting to see something coming. I don’t know that everyone’s going to love it, but I’d be really curious and choosing where you sit as your identity. This is why it’s important, right? Not just to kind of listen passively. I think it’s really important that each of us ultimately decide what is that identity?

Are we an advisor that sells? Which I think is still critical. We still need to place the solutions, okay? How we get compensated is another question perhaps. Implementation is crucial. It’s crucial, right? But we also need to decide what that marketing is going to look like. Again, it’s going to be paramount for us working forward together because how you market, how you brand, how you build, what you say yes and no to is going to be critically important based upon what your structure is. And for those of us that want to stay specifically in a product solution, become an expert in, let’s say, estate planning and life insurance.

Own it, love it, be transparent about it. That’s right. So important because as a consumer myself, I go to a website. If I’m looking to buy something, one of the first tabs I look for is there a pricing tab? Oh, no pricing tab. I’m leaving. I’m not interested, right? So I think we have to have that. But answer that identity question and then own it. I think that’s what you have to walk away with at that part there. I think it’s a great way to think about it. Very cool. Well, one of the things that we’ve been trying to do in this podcast and you’ll hear us do this again and again is we open up to the community is our own version of Dear Abby, right?

Dear Derek and Adam. Talk about something. Both Derek and I speak a lot around the world now and give our opinions good or bad to a whole bunch of companies and financial advisors and professionals. And this one came in from Chris in Canada, submitted via email. And so you can do this by certainly doing it on social by LinkedIn following us and just sending us a direct message. Say, hey, I want you to address this topic. This one actually comes up a lot. And here’s what he wrote. Dear Adam, you mentioned a concern that has been robo advice taking over the industry and practices. What are your thoughts on this question and what other disruptors do you see?

Let me throw this to you, Derek, because we get this question a lot personally. What’s your perspective on robo advice? How it’s going to affect both the advisor and the salesman? This is your salesperson. Yeah, I think this is almost a foregone conclusion at this point. Skynet’s not taking over, okay? It’s not happening. Are you sure? At least in this space, I’m pretty darn sure. I think there was a flash in the pan with robo advice and a lot of advisors got scared because it commoditized what we do and took the power away from us. I think what ended up happening is that people figured out like, well, wait a minute, like I’m a human being and robo advice can only help me so much because a robot doesn’t know who I am.

They can’t empathize with me. They can’t build trust with me in a relationship and give me customized advice. So really what I see is robo advice becoming one of a handful of tools in an advisor’s toolbox. I think that’s in my personal opinion. I don’t think there’s going to be any disruption at all. I think an advisor might just say, hey, okay, for this client, for this situation, you know what? We should use a robo advisor. It just makes sense. So now it’s almost like where it’s the roles have been flipped where now the advisor is in control and is kind of dangling their hand up top with all their different tools and robo advice is just one of them hanging there.

So I don’t see it as a concern at all. And if anything, it’s now just another, you know, arrow in the quiver for us. It’s interesting. My own thought of this keeps changing. When robo one came out, you remember that when you said the flash in the pan, the first robo, I was like, no, this is never going to stick. Robo two was, okay, wait, we need to add humans to our robo advice. And we’re like, yeah, see, we told you that you needed humans. 0, I think we’re starting to see, which is really the fact that financial advisors just adopted and absorbed portals, trading, reallocation.

The stuff that should be technified, if you will. It’s really a form of delegation, isn’t it? Technology just allows us to do something cheaper, more efficiently than a human theoretically could have done it. And by the way, we should be doing that as a society. The productivity gains happens when we take our most meaningless or less menial tasks and we basically automate them and we elevate people to go work on more important stuff. That’s where we actually deliver more humanity, ironically, is if it frees me up more time to actually be more human, then cool. That’s gonna actually lift more boats. That being said, I really think that we need to be aware here.

The growing millennial population that is getting frustrated with the obscurity of the value proposition of a financial advisor, because they don’t even go to the banks anymore. By the way, they don’t walk into banks. They don’t interact. They don’t have that human component connection established with someone who gave them good advice. They might think that they’re gonna self-service enough online by just buying the hot Reddit GameStop or whatever, whatever. And that is financial advice, right? They’re gonna, unfortunately, I think there’s a huge population that will never actually interact with a human advisor and even understand the scope of which we talk about. Legal, tax, insurance, investment.

They’re just not gonna get there and they’re gonna find out too late. And my fear is that the robo-advice will stick. Get this. The robo-advice technology that’s gonna come out is gonna be what? It’s gonna be a profitable technology. A profitable technology is gonna do what? It’s gonna take the market share of distribution of product away from the people who are getting massive margins. We know them personally. So think about it. As a business, the technology that’s gonna come out is going to enable distribution of product, not advice. If that is what people get to know as basically doing financial planning, that will basically perpetuate the same problem that we’ve been talking about all this program as well as the past hundred years is that product will drive at scale, low margin, mass distribution.

It’s whoever can push the most product. That’s financial planning and that would be a travesty. So the irony behind it is that it’s not robo-advice. It’s robo-sales. The full circle of all this is that what will probably disrupt the financial services industry the most is robo-sales. And I bet you Amazon will do it and Google will do it because they have distribution network. So that’s why I say I’m not so sure anymore. Robo-advice I’m not worried about. It’s hard to make financial decisions and when there’s a high cost of being wrong, you want a human. So I think we’ll have a place there. We have to really decide what our identity is gonna be here because by the way, we’re gonna want to use those product distribution tools just like the consumer.

Well, think about that. I mean, you’re able. We’ve already had fee compression for years now. And think about this. You have a robo-sales platform, marketplace for whatever. So maybe you’ve met with an advisor virtually or in person like, okay, I need this. I paid for my financial plan but I’m gonna go to this marketplace now and go buy this thing. That’s it. Dude, you’ve just cut out like two or three middlemen, if not more. So you’re getting your product at wholesale. That actually is a massive potential disruption that if I was a product distribution company, I would want to be paying really close attention to this and get in front of it somehow.

Well, think about that. A product manufacturer like a mutual fund company or a life insurance company or an annuity company, they are a product manufacturer no different than a car manufacturer in a sense. Their biggest cost is what? Distribution. If distribution can go digital, then they don’t need agents anymore, which is why if this, if you’re asking yourself why does it really matter, guys, it matters because in the future, the way you’re paid may not be the way you’re paid today. And that’s why I’m asking is the consumer gonna pay for you if the product company doesn’t? That’s a mind bender. I think I can speculate on where that’s gonna go and I would say maybe focus on getting some of those credentials we talked about earlier.

Maybe. Time to ask that question now before you wind up with this. Technology is moving fast. Both of us have seen this as tech CEOs that are our advisors. This stuff’s changing fast. We got to pay attention. So with that, by the way, thank you, Chris. We will be sending you an awesome rethink t-shirt so that you can walk around with telling everybody that you’re rethinking everybody and they’re gonna say what are you talking about? So thank you. It’s gonna be fun. By the way, you can get one too. If we pick your question, we will send you the coolest shirt that says Rethink across the front of it.

Everybody will think you’re a real game changer. Very cool. Yeah, they’re really, really cool. Hey, Derek. So are you an advisor that sells or a salesperson who advises? I’m definitely an advisor that sells at this point. 100%. You know, I was gonna answer the question without a whole bunch of other stuff first. Nice. Well done. I am as well. I aspire to be an advisor who helps others and that’s good by the way. So hopefully you guys feel part of this. Remember to subscribe to our podcast and be part of it. Don’t be shy. Be part of this conversation. You can get involved by direct messaging us on LinkedIn.

We look forward to being part of your daily routine. You’ve got a daily. If you want to see her, well, you can’t see her faces but you can hear her voices. That’s pretty sweet. God will. Take care, buddy. All the best, bud. Cheers, guys. Thank you for listening to Rethink, the financial advisor podcast with Holt and Notman. Be sure to subscribe now and join the ongoing conversation. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of AssetMap or Connector. The content has been made available for informational and educational purposes only.